Gold falls more than half a per cent

GOLD prices have dropped as a stronger US dollar dampens investor appetite for the currency alternative.

Gold for April delivery, the most active contract, fell $US8.70, or 0.7 per cent, to settle at $US1,251.20 a troy ounce on the Comex division of the New York Mercantile Exchange.

The US dollar advanced against a basket of currencies, turning up the pressure on dollar-denominated gold futures. The ICE Dollar Index was recently at 81.096, up from 80.988 earlier.

"If the dollar is going to be firm, it's a negative for the market. Gold is not getting any help from the dollar," said Bill O'Neill, a principal with LOGIC Advisors LLC.

A rise in the US dollar makes dollar-denominated gold more expensive for investors who use other currencies to fund their purchases. Gold is also widely considered an alternative to the greenback and other currencies, with investors buying the precious metal as a hedge against their foreign-exchange holdings.

A rebound in US equity markets also tempered investor interest in the precious metal. On Monday, gold prices had put in their biggest percentage gain in more than a week as losses in the stock market drove investors to buy gold, which is seen as a haven asset. But the trend reversed Tuesday as the S&P 500 index rose 13 points, or 0.8 per cent, to 1,755 in intraday trade.

"The tone of the (gold) market is just so lacklustre: the rallies are very vulnerable and quickly meet with selling," O'Neill said.

Some investors were reluctant to bet on further gains after gold futures rallied well above $US1,250 an ounce on Monday.

Gold traders "are still very cautious," said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago.

"Gold's not going anywhere. It's one step forward, two steps back," he said.